Engaging in Aircraft Transactions Abroad-Key Issues Confronted in - PowerPoint PPT Presentation

Engaging in Aircraft Transactions Abroad-Key Issues Confronted in Buying, Selling, Leasing or Financing Aircraft Outside of the U.S. Wednesday, October 23| 1:00 p.m. – 2:00 p.m. Presented By: Sean Fitzgibbons James Meyer 1

Engaging in Aircraft Transactions Abroad • Different Types of Transactions – Sale of aircraft inside of the U.S. for export – Purchase of aircraft outside of U.S. for import or for use outside of the U.S. – Leasing aircraft outside of the U.S. (as Lessor/Lessee) – Leasing aircraft from a foreign Lessor – Lending to a non-U.S. borrower to purchase aircraft – Borrowing from a non-U.S. lender to purchase aircraft for use in the U.S. – Chartering aircraft outside of the U.S. – Overflight – Combination of one or more of the above in multi-aircraft transactions, including “trade in, plus cash” deals 2

Key Issues Confronted When Engaging in Aircraft Transactions Outside of the U.S. • Aircraft Transactions conducted abroad are usually more complex, take more time, and cost more then domestic transactions. • Cross border aircraft transactions involve multiple U.S. and foreign government agencies and the parties to such transactions must comply with a host of U.S. and foreign laws and regulations • Accordingly, the parties to such transactions must carefully consider the following key issues: – Selection of appropriate local counsel – Requirements for export aircraft from the U.S. into another jurisdiction – Requirements for importing aircraft into U.S. from another jurisdiction – Applicability of VAT and other aviation taxes – Cultural Differences and potential challenges faced in different regions 3

Retaining Counsel and Determining Scope of Retention • Who has internal responsibility, oversight, and authority over transaction? • Available resources, in-house knowledge & expertise? • Time constraints and other limitations? • General Contractor vs. One-Stop Shop? • Alternatives to outside counsel? • Complexity of transaction? • Scope of engagement? 4

Strategies for Selecting Local Counsel What to Consider when Choosing Counsel: • References • Experience • Affiliations • Bench strength • Credentials • Communications • Membership in professional • Language (interpreters, document organizations (e.g., NBAA Tax translations) Committee) • Fees (alternative fee arrangements?) • Presentations and publications • Written materials (e.g., differences and common challenges, example closing checklist) •Responses to the following questions… 5

Strategies for Selecting Local Counsel Questions for Local Counsel: De-registration/Export • What are the costs and practical difficulties of de-registration/export? • Who should apply for de-registration/export • Is there a particular time period within which application for de- registration/export should be made? • How long does the de-registration/export process take? 6

Strategies for Selecting Local Counsel Questions for Local Counsel: Registration/Importation • What documents are needed to register/import the aircraft and what are the costs of registration/importation? • How long does the registration/importation process take? • Once aircraft is registered in the state of registration’s aircraft registry, will any liability be imposed upon the aircraft’s owner or lender with respect to aircraft operation, maintenance, or insurance? 7

Strategies for Selecting Local Counsel Questions for Local Counsel: Lease • Does the state of registration recognize the concept of a lease over the aircraft? • Which governing law is best? • Should parties agree to arbitration? • If aircraft must be insured locally, can re-insurance be placed overseas with a cut-through clause? 8

Strategies for Selecting Local Counsel Questions for Local Counsel: Taxes • Would payments made pursuant to any agreement relating to the aircraft be subject to any tax? If so, is there a jurisdiction where such payments could be made to avoid the imposition of such tax? • Is prior Central Bank approval required for such payments? 9

Strategies for Selecting Local Counsel Questions for Local Counsel: Other • Which Conventions has the State of Registration ratified? • Are there any legal idiosyncrasies to be aware of? 10

Exporting Aircraft from the U.S. • Obtain Export Certificate of Airworthiness (Export CofA) • De-registration from FAA Registry • Re-registration in foreign Registry 11

Exporting Aircraft from the U.S. Compliance with U.S. Export Controls: Key Questions • What is being exported/re-exported? • Where is it being exported/re-exported? • Who is the end user/ultimate consignee? 12

Compliance with U.S. Export Controls Export Administration Regulations (EAR) • Most aircraft, its engines, and aviation components are controlled for export purposes by the U.S. Department of Commerce Bureau of Industry (BIS) under the EAR • EAR controls all civil aviation products even after they are exported from the U.S. • Licensing Requirements are based on cross referencing the Export Control Classification Number (ECCN) found on the Commerce Control List (CCL) with the Commerce Country Chart. 13

Compliance with U.S. Export Controls Foreign Assets Control Regulations (FACR) • Administered by U.S. Department of Treasury Office of Foreign Assets Control (OFAC) • Implements trade embargoes against specific target countries and individuals – Almost total embargoes on Cuba, Iran, Syria, Sudan, North Korea – Limited sanctions against other countries – Specially Designated Nationals and Blocked Person List (SDN) 14

Compliance with U.S. Export Controls Other Export Controls • International Traffic in Arms Regulations (ITAR) covers – Aircraft equipped with anti-missile technology – Certain night vision equipment and NVG compatible cockpits – Most former military helicopters • Certain civil systems, including inertial navigation systems, may require a license to be exported, re-exported, or transferred to end-users in many countries. • China military end user restrictions 15

Compliance with U.S. Export Controls Practical Effects of Compliance Generally, most civil aircraft, engines, and aviation components may be sold or leased to most entities in most countries without a license, However: – Sale or dry lease to embargoed countries is prohibited – Sale or dry lease to a barred entity or for a barred end-use is prohibited – Sale where the seller knows or has reason to know the aircraft, aircraft engine, or aviation component is intended to be resold or leased to an embargoed country or barred entity for a barred end use. 16

Compliance with U.S. Export Controls Export and Customs Clearance for Sale or Lease of Aircraft • File Electronic Export Information (EEI) electronically through the Automated Export System (AES) • File export manifest and e-APIS with customs • Be aware that export procedures differ from port to port 17

Importing Aircraft into U.S. Importation is required when: • Foreign registered aircraft enters the U.S. for the purpose of sale or purchase • U.S. registered aircraft manufactured in a foreign country enters the U.S. for the first time • U.S. registered aircraft temporarily imported into a foreign country returning to be based primarily in the U.S. 18

Importing Aircraft into U.S. • Obtain U.S. Airworthiness Certificate • De-registration from foreign registry – Ensure that Foreign Registry’s Notice of De-Registration is “acceptable” • Re-registration with the FAA 19

Importing Aircraft into U.S. Customs Requirements • Customs declarations must be filed before the aircraft enters the U.S. for importation • Notify CBP of intent to land and enter the U.S. a minimum of 2 hours and a maximum of 24 hours prior to arrival • Have all necessary documentation on hand to show to custom’s agent upon entry into U.S. • Complete Customs POA if utilizing a customs broker • Post import bond 20

Changing Tax Regimes in Latin America • Old Regime: Pay VAT or obtain overflight permits • New Regime: Operação Pouso Forçada • Overview of VAT and other aviation taxes in: – Brazil – Venezuela – Mexico • Potential effects of “new regime” to application of VAT tax in Latin America 21

Recent Developments in Brazil Operação Pouso Forçada • In June 2012, a task force of Brazilian tax police, federal police and ANAC (the Brazilian Civil Aviation Authority) seized 21 business jets for alleged tax evasion – The authorities alleged aircraft was repeatedly flying in and out of Brazil to renew temporary admissions permits and that records indicated usage patterns consistent with Brazilian ownership and use – U.S. Non-Citizen Trusts seen by authorities as a tax evasion strategy 22

Recent Developments in Brazil Operação Pouso Forçada • Brazilian authorities have since targeted a number of other aircraft • It has been reported that some of the owners have settled with the government while others have appealed • As of August 2013, the Revenue Service issued a notice that some of the seized aircraft will be sold at public auction – Such aircraft include a Bombardier Challenger 300 and a Bell Helicopter. The owners of these aircraft have appealed to block the sale. 23